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Annex 3
Canada's Financial Performance in an International Context

Introduction

• This annex reviews Canada’s financial position on a comparable basis with that of the other Group of Seven (G-7) countries (United States, United Kingdom, France, Germany, Japan and Italy). The data relate to the total government sector, on a National Accounts basis of accounting. For Canada, this includes the federal, provincial-territorial and local government sectors, as well as the Canada Pension Plan and the Quebec Pension Plan. In addition, this annex compares the fiscal situation of the federal government in Canada and the United States.

• On a total government sector basis:

• Canada was the only G-7 country to record a surplus in 2002 and 2003.
• According to the Organisation for Economic Co-operation and Development (OECD), Canada is projected to be the only G-7 country to record a surplus in both 2004 and 2005.
• Canada had the largest improvement in its budgetary situation among the G-7 countries since 1992, including the sharpest decline in the debt burden.
• Canada’s total government sector debt burden declined to an estimated 35 per cent of gross domestic product (GDP) in 2003 and, according to the OECD, it is expected to be the lowest in the G-7 in 2004.

• Looking at the federal government fiscal positions in Canada and the U.S.:

• The Canadian federal government posted a surplus of C$7.0 billion, or 0.6 per cent of GDP, in 2002–03 while the U.S. federal balance fell further into deficit in 2002–03 to US$375 billion, or 3.5 per cent of GDP.
• For 2003–04, a surplus of C$1.9 billion is estimated for Canada, while a deficit of US$521 billion is projected for the United States.
• As a result of continued surpluses at the federal level in Canada and the recent deterioration in U.S. federal finances, the federal market debt-to-GDP ratio in Canada is expected to fall below the U.S. figure in 2003–04 for the first time since 1977–78.

Canada was the only G-7 country at the total government sector level to record a surplus in 2003 according to OECD

• Canada was the only G-7 country to record a surplus in 2003, according to OECD estimates of total government sector^[1]  financial positions, measured on a National Accounts basis. This was the second consecutive year in which Canada was the only G-7 country in surplus.

• Canada’s surplus for 2003 is estimated at 1 per cent of GDP by the OECD, compared to an average deficit of  4.7 per cent of GDP in the G-7 countries.

Canada’s financial balance has improved significantly compared to the G-7 average

• Canada’s total government sector financial balance has improved substantially since 1992, when it recorded a deficit of 9.1 per cent of GDP, almost double the G-7 average.

• In 1997, fiscal improvements at all levels of government enabled Canada’s total government sector to post a surplus. Canada has consistently recorded surpluses since that time with 2003 being the seventh consecutive year of surplus.

• Canada has shown the largest budgetary improvement of any of the other G-7 countries over the past decade. From 1992 to 2003 Canada’s total government financial balance registered a turnaround of about 10 percentage points.

• In contrast, despite showing improvement in the second half of the 1990s, the financial balance for the G-7 countries, on average, has almost returned to 1992 levels.

Canada is the only G-7 country expected to maintain a financial surplus

• All of the G-7 countries continue to experience considerable pressure on their finances.

• However, Canada is expected to continue to be the only G-7 country to post a total government surplus this year and again next year, according to OECD.

Canada’s program spending as a share of GDP is now below the G-7 average

• The substantial turnaround in Canada’s financial position, as a percentage of GDP, is attributable in large part to a sharp reduction in program spending, i.e. all expenditures less public debt charges.

• Between 1992 and 2003 Canada’s total government program spending as a share of GDP is estimated to have been reduced by 9.2 percentage points, a far greater reduction than in any other G-7 country.

• As a result, Canada’s program spending relative to GDP is now below the G-7 average, whereas in 1992 it was well above the G-7 average.

Canada has achieved the largest decline in the debt burden among the G-7 countries

• Canada had the second highest government debt burden in the mid-1990s. Since then Canada’s total government sector has achieved the largest decline in the debt burden of the G-7 countries. Between 1995 and 2003 the net debt-to-GDP ratio was reduced by 34.3 percentage points.

• As a result, Canada’s total government debt burden moved below the G-7 average in 2001, and is projected by the OECD to be the lowest of the G-7 countries by the end of 2004.

Canada is one of very few countries with a sustainable public pension system

• International financial comparisons focus on the total government sector, which includes the federal, provincial-territorial and local governments as well as the CPP and QPP.^[2]

• Although public pension systems around the world differ greatly, Canada is one of very few countries with an actuarially balanced public pension system.

• As a result of reforms in 1997, which increased the degree of pre-funding of the CPP/QPP and improved stewardship and accountability, the CPP/QPP is now actuarially sound for at least the next 75 years.

• As a result of improvements to Canada’s pension system and the substantial turnaround in the fiscal situation at both the federal and provincial levels of government, Canada’s ability to meet future fiscal challenges, including those associated with population aging, has improved significantly since the mid-1990s.

Unlike the U.S., the federal government in Canada has maintained a budgetary surplus since 1997–98

• The Canadian and U.S. federal governments achieved significant turnarounds in their budgetary balances over the last decade, moving from large deficits in the first half of the 1990s to surplus positions in the latter half of the 1990s. However, since 2001–02 Canada has remained in surplus while the U.S. has returned to deficits.

• The Canadian federal government posted a surplus of C$7.0 billion, or 0.6 per cent of GDP, in 2002–03, while the U.S. government recorded a deficit of US$375 billion, or 3.5 per cent of GDP. It is worth noting that the U.S. government’s on-budget deficit, which excludes the Social Security account’s surplus, was US$536 billion. Pension surpluses generated by the CPP in Canada are not included in the federal balance.

• While the Canadian budgetary balance is expected to be in a $1.9 billion surplus in 2003–04, the U.S. budget deficit is expected to worsen to a record level of US$521 billion, or 4.5 per cent of GDP (the on-budget deficit is projected to be US$675 billion).

The federal market debt-to-GDP ratio in Canada is expected to fall below that of the U.S. in 2003–04

• Both countries achieved a significant decline in the market debt-to-GDP ratio in the second half of the 1990s.

• As a result of continued surpluses at the federal level in Canada and the recent deterioration in U.S. federal finances, the federal market debt-to-GDP ratio in Canada is expected to fall below the U.S. figure in 2003–04 for the first time since 1977–78. The Canadian federal market debt-to-GDP ratio is expected to fall to 36.8 per cent in 2003–04, while the U.S. figure is expected to rise to 38.6 per cent.

¹ Includes federal, provincial-territorial and local governments as well as the Canada Pension Plan and Quebec Pension Plan. The OECD uses the term "financial balance" to mean "budgetary balance".  [Return]

² The CPP and QPP are funded through payroll contributions and ensure a basic level of retirement income for all working Canadians.  [Return]

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